6/17/2010 @ 11:32AM

If Charity Is Their Goal, Gates And Buffett Should Hoard Their Wealth

In its latest issue, Fortune magazine reports that “Bill Gates, Melinda Gates and Warren Buffett are asking the nation’s billionaires to pledge at least half their net worth to charity, in their lifetime or at death.” Gates told Fortune that 50% of one’s wealth would constitute the “low bar” for giving, while Buffett has pledged to give 99% of his wealth away.

At first glance this is something to celebrate, for it rightly confirms that capitalism is, at its core, quite compassionate. The charitable ways of Gates and Buffett also provide living proof that the “trickle-down theory” is in fact reality.

And when we consider that the greedy hand of government will help itself to half of Gates’ and Buffett’s money upon death anyway, the idea of them depriving our federal masters while supporting good causes becomes even more appealing.

But while it’s exciting to contemplate the giving nature of Gates and Buffett, if their true desire is to help their fellow man, they should hoard every penny of their significant wealth. For the two richest men in the U.S. to monetize their wealth in order to support charities is for them to oversee the conversion of production goods to consumption goods. Some will no doubt benefit in the near term, but the removal of limited capital from the productive parts of the economy will ultimately reduce our standard of living, drive up unemployment and make individuals more–as opposed to less–needful of charity.

Conversely, money saved and invested constitutes capital offered to today’s and tomorrow’s businesses. When individuals save, they’re by definition providing capital to entrepreneurs, and the capital formation that results from saving naturally stimulates job creation. Considered in this light, savers and investors are conferring the ultimate benefit on others by virtue of their financial means supporting individuals eager to work.

There are no jobs without investment, and given the billions that Gates and Buffett control, if they were to hoard their wealth rather than give it away, their wealth-creation motive would boost the job market. All job creation begins with delayed consumption, as does all wealth creation. So when the rich maintain their money and investments, their increased net worth redounds to wages and job opportunities. Some would call the hording of wealth greed, but it’s a fair bet that the millions of Americans presently unemployed wouldn’t mind Gates and Buffett adding a few zeros to their net worths if it meant those looking for work could find good jobs.

Considering innovation, most everything that we enjoy today results from individuals saving, as opposed to giving away their money. Entrepreneurs can’t be entrepreneurs without capital, and it was the savings of others that enabled Henry Ford to replace the carriage with the automobile, allowed banks to replace the traditional teller with the ATM and continues to turn formerly blighted city sections into shining examples of urban renewal.

Capital is what erases unease in our lives, and it is what fixes the broken. Free capital, not charity, gave Buffett the opportunity to create trillions of wealth through his keen eye for economy-enhancing business concepts, and it’s what Gates accessed in order to transform the world with
Microsoft
software.

Gates and Buffett might argue that to keep their wealth would be for them to make their descendants dependent on the fruits of their present productivity, and while perhaps true, if they give their money away they’ll merely shift dependence to the myriad charities and individuals reliant on their largesse.

Charity, though not quite a government handout, gives while asking for little in return. On the other hand, investment provides opportunity while asking for the very accountability that builds character and a greater sense of self worth.

So while most in the media will lionize Gates and Buffett for being so very “selfless” with their immense wealth, the greater truth is that the noblest of all charitable acts is to help individuals avoid charity altogether. And if they held on to their significant wealth with an eye on investment, Gates and Buffett would be doing just that.

The great industrialist Andrew Carnegie long ago observed that “The man who dies rich, dies disgraced.” Carnegie was wrong.

The man who dies rich dies a hero for his delayed consumption driving innovation and job creation on the way to even greater wealth. To save and invest is to expand capital, while selling assets in order to consume wealth is to destroy limited capital.

Ultimately Gates and Buffett should be free to dispose of their wealth as they wish, but just once it would be nice to pick up the paper and read about an industrialist unabashedly holding on to all his money. The media would surely demonize such an individual, but his wealth motive would be our gain.

John Tamnyis editor of RealClearMarkets, a senior economist with H.C. Wainwright Economics and a senior economic advisor to Toreador Research and Trading. He writes a weekly column for Forbes.